This Old Dog Might Still Lead the AI Pack

Cisco Systems (NASDAQ: CSCO) is not the hottest name in tech. It doesn’t make AI chips, run a cloud empire, or power the latest social media trend.

But in 2025, this old networking giant is quietly staging one of the most impressive turnarounds in the sector.

Shares are up 52% over the past year and just hit a new 52-week high, yet its valuation remains modest and its growth story is just taking shape.

Cisco’s transition from hardware giant to software and services powerhouse is finally gaining traction.

While investors once saw it as a legacy tech name with slowing growth, Cisco is proving them wrong, with expanding AI infrastructure orders, momentum in cybersecurity, and a renewed focus on subscription revenue.

With shares trading at just 17 times forward earnings and an earnings beat on the way, the setup for continued gains is strong.

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Strategic Positioning: From Switches to Subscriptions

Cisco remains the largest networking hardware provider in the world, with leading market share in switching, routing, and campus network gear.

But its real growth is now coming from high-value areas: software subscriptions, cybersecurity, and AI-related data center infrastructure.

Earlier this year, Cisco finalized its $27 billion acquisition of Splunk, giving it a strong position in the observability and security analytics space.

The impact is already visible. Revenue from security products jumped 54% in the latest quarter, helping Cisco cross the $2 billion threshold in that segment.

This shift makes Cisco less dependent on traditional product cycles and more aligned with long-term IT spending priorities.

AI infrastructure is also emerging as a tailwind. Cisco has already secured more than $1.25 billion in AI orders from hyperscale customers this fiscal year, including Meta, which is exploring Cisco’s Ethernet fabrics as an alternative to Nvidia's InfiniBand.

With enhanced Ethernet solutions and AI-ready switching hardware, Cisco is poised to benefit from the expanding buildout of large-scale AI clusters.

These strategic pivots are paying off. Revenue rose 11% last quarter to $14.15 billion, with net income up 32% year-over-year.

And despite macroeconomic uncertainty, Cisco’s management raised guidance for the current quarter, signaling confidence in the company’s multi-pronged growth engine.

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Valuation: Quality at a Reasonable Price

Despite the stock’s strong recent run, Cisco remains relatively inexpensive.

It trades at 17 times forward earnings and 28 times trailing earnings, which is a discount to many large-cap peers in networking and security.

It also offers a 2.35% dividend yield, with 14 consecutive years of payout increases. This makes CSCO one of the rare tech names offering both growth and income.

With $276 billion in market cap and a balance sheet strengthened by recurring revenue, Cisco could appeal to investors seeking stability with upside.

JPMorgan recently reaffirmed its Overweight rating and raised its price target to $73, while other firms point to further re-rating potential as AI orders scale.

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Growth Catalysts: What's Driving the Breakout

• Next-Gen Catalyst Switches: The upcoming launch of Cisco’s Catalyst-2026 series is expected to boost average selling prices and adoption rates across enterprise networking.

• AI and Data Center Orders: Infrastructure orders from large web companies, including over $600 million in the latest quarter, are accelerating ahead of Cisco’s internal targets.

• Security & Observability: Splunk is enhancing Cisco’s capabilities in threat detection and observability, creating a stickier, higher-margin platform for enterprise IT teams.

• Cloud and SaaS Model: With more of their business shifting to subscriptions, Cisco is building a more resilient revenue base. KeyBanc cited this transition when initiating coverage with an Overweight rating.